If you've considered starting your own business, you should be aware of the financial risks and implications. Here are the key steps to take when planning to start your business, from working with a financial planner Edmonton to writing out a thorough business plan.
Ask a Financial Planner Edmonton: How Can I Plan for Starting a Business?
Research the Market
Your first step before starting any business should always involve conducting market research. First, consider the problem that your business would solve and the target audience that needs your solution. Be open-minded about who your ideal customer is, because your research may come up with different results than you expected. Important things to find out about your target demographic include:
• Age, gender, income, educational status, and marital status
• What they like to do in their free time
• Where they live
• Their values and beliefs
Once you know who you're trying to reach, analyze the market for competitors or substitutes. Is there room in the market for your business, or is it already over-saturated? Aside from evaluating specific competitors, it's also wise to assess the market as a whole. Certain conditions, like stable growth or recent investments in new housing projects, make economic conditions more favourable for a new business venture.
Understand the Different Business Structures
Depending on your goals and the level of risk you want, you have different business structures available to you. The three most common business structures in Canada are sole proprietorship, partnership, and corporation. Here's a key breakdown of the differences between the three structures.
Sole Proprietorship
Profits go directly to the owner. The business is fully controlled by the owner and is not a separate entity in the eyes of the law. This means that your personal assets could be held against you if someone were to sue your business.
Partnerships
Profits have a similar structure to a sole proprietorship, except with more than one owner. The profits of a partnership are earned and split by the partners. The business is controlled by the rules set out in the partnership and is not a separate legal entity from the two partners.
Corporations
Profits are earned by the corporation, which is controlled by directors and shareholders. The corporation is a separate legal entity from its owners, meaning that the owners' personal assets aren't relevant to any action taken against the business. Corporations are the smart choice if you're looking to raise large amounts of money through investments.
Think About Your Tax Obligations
Your business structure also determines your tax obligations. As a sole proprietor, you will be taxed as an individual. The profits from your business are taxed as income. By the same logic, partners are taxed based on their share of the income.
Corporations pay corporate taxes, while shareholders and directors pay their own taxes. Note that if you exceed the $30,000 threshold (revenues before expenses), you will need to register for the Goods and Services Tax.
Assess Your Financial Situation With a Professional
New businesses often fail because they don't have the financial skills to overcome early setbacks. For example, many businesses struggles to maintain enough cash flow to manage the inevitable ebbs and flows of a new company. A financial advisor can guide you so that you can build enough of a cushion to support you through difficult times.
Your financial planner Edmonton can help you create an investment strategy that can put you in the best financial position possible to receive a loan from investors. Consolidating your debt or re-structuring your retirement plan can build your credit so that you can get support from lending institutions.
Write Out Your Business Plan
The next step is to use all of the information you have gathered thus far to write up your business plan. Based on your market research, explain in your plan why it's the right time for you to start your business and what sets you apart from competitors. Outline the supply and demand for your target market, then explain how you will reach this market.
Go into detail about what you need to operate your business, from the operating costs to the physical location to the number of employees you plan to hire. Depending on the type of business you create, you may need to get additional permits. These include, but aren't limited to, health permits, sales tax permits, and zoning permits.
Consider Succession Planning
When you're in the beginning stages of opening a new business, the last thing you may be thinking about is your exit strategy. Don't put this crucial step of your business's financial planning off to the side. Since almost half of Canada's private sector GDP is made up of family enterprises, it's likely that your family members will be involved in your business's operations or legacy.
Use your business plan as a reference for your succession planning. You may want to leave the business to a certain family member if you had to make a sudden departure. Would you want the family member to run the business with an outsider? Maybe you would leave it the business to someone outside the organization altogether? Which professionals, such as lawyers or financial experts, would you want to stay on the team if ownership changed hands?
Register Your Name
Now it's time to select and register the name of your business. Once you have an official name, you can use it for necessary financial activities like opening your business's bank account. It's unlikely that you will be able to use the same name as another registered company or trademark, so take a look at the Canadian corporate names and trademarks database. There are also regional Canadian databases for registered trade names.
Open Your Bank Account
You need to open a separate bank account for your business if you're not registered as a sole proprietorship. To open a business bank account as a partnership, you'll need the registered declaration of partnership, the registration for your name, and a signed copy of your partnership agreement.
It may require more information to open a bank account for your corporation. Some of the documentation you will need includes your business number, business licences, and your articles of incorporation. Bring multiple forms of identification if you're opening your account on behalf of all of the owners. You will also need to present the bank with their personal information. A financial planner Edmonton can help you collect and prepare the relevant documents.
Commit to Your Decision
Most importantly, the key difference that separates a successful new business from one that fails is the leadership's confidence. If you feel 100% ready to start your business, you're probably too late. Global research from McKinsey found that faster decision-making and execution of those decisions lead to higher returns. So, conduct your research, meet with a financial advisor, and develop your plan. Then trust yourself to take the risk! Whether you're in the early stages of planning your business or you're already at the helm of a thriving company, you can benefit from an Edmonton financial advisor. Our team will look through your financial situation and walk you through strategies for managing your cash flow, investing your corporate assets, and minimizing your taxes. Contact as at DeHaan Private Wealth to learn more!